Output for Britain’s
construction industry is expected to be less than previously forecast over the
next three years given concerns around government’s ability to deliver on major
infrastructure projects.
The Construction
Products Association’s (CPA) Summer Forecast for 2019-2021 anticipates a 0.3%
decline in total construction output for 2019, in line with previous
projections, but the forecasts for 2020 and 2021 have been revised down to 1.0%
and 1.4% from 1.4% and 1.7% respectively since the Spring.
The CPASummer Forecast, which provides a comprehensive analysis of the drivers of
construction activity across thirty industry sectors, identifies the
infrastructure sector as a main driver of growth and vital to the fortunes of
the construction industry in the next few years.
Total construction
output would fall by 1.7% in 2019 and experience no growth up until 2021
without the delivery of major infrastructure projects, which have been put into
further doubt given the new Prime Minister Boris Johnson’s commitment to
initiate a review of HS2.
High-profile
projects such as the Thames Tideway Tunnel, High Speed Rail and Hinkley Point C
are expected to drive activity in the infrastructure sector as well as the new
five-year regulatory periods in the water & sewerage, rail and roads
sub-sectors. After almost a decade of austerity, local authority funding will
also prove important to activity on roads. The CPA Forecast expects delays to
these projects to pose a major risk to the sector and, in turn, put the
fortunes of the wider construction industry into question.
While the overall
figure for construction output signals growth, it also masks a high degree of
variation across regions, sectors and sub-sectors. Levels of construction
activity remain high in the Midlands, the North West as well as Yorkshire and
the Humber, whilst declines in activity can be found in key regions such as
London, the South East and parts of the East of England.
On a sectoral basis,
activity levels remain high in private and public housing, industrial
warehouses and infrastructure. Sub-sectors such as commercial offices,
commercial retail and industrial factories continue to endure falls in
activity, however, mainly due to investor sentiment being impacted by the
continued economic and political uncertainty surrounding Brexit.
Noble Francis,
Economics Director at the Construction Products Association, said:
“Construction output in some key sectors has already been badly affected by
Brexit uncertainty over the past 18 months and when you add in rising concern
about government delivery of major infrastructure, it is a highly uncertain
time for the construction industry. Activity on the ground, overall, still
remains at a high level after rising by 28% between 2012 and 2017. However,
output growth slowed to only 0.3% in 2018 and we forecast that construction
output will fall by 0.3% in 2019 before growth of only 1.0% next year, even
with a smooth Brexit and with government delivery of infrastructure projects.
"The fall in
construction output during 2019 and 1.0% growth in 2020 masks the stark
differences in regional and sectoral fortunes across the country.
Infrastructure output is forecast to rise by 9.3% this year but this growth is
highly dependent upon the delivery of the £4.2 billion Thames Tideway Tunnel,
the £19.6 billion Hinkley Point C nuclear power station and the £56 billion HS2
high-speed rail project.
"Private housing is
the largest construction sector, worth £36 billion in 2018, and it has been the
key driver of industry growth over the past five years. Activity in the sector
is currently slowing and private housing starts are forecast to fall by 2.0%
this year before growth of 1.0% in 2020. The sharpest falls in new housing
demand are occurring in London and the South East, particularly for prime
residential flats. However, these falls are currently being partially offset by
house building growth in the North West, Yorkshire and the Midlands, buoyed by
Help to Buy. In these areas, a lack of key skills remains a key issue.
"Construction output
in commercial, the second largest construction sector worth £29 billion in
2018. Commercial output fell by 6.4% last year and we forecast it will fall by
6.9% in 2019 and a further 4.7% in 2020 due to the impact of Brexit uncertainty
on the offices sub-sector, in particular investment in new offices towers in
London, as well the impact of continued shift of consumer spending online and
its adverse impacts on new investment in retail construction.
"Overall, especially
given the current high level of uncertainty, it is essential that government
commits to better delivery of the major infrastructure projects that it says
are essential for the country. Only then will construction provide a boost to
UK economic growth and give firms the confidence to invest in vital capacity
and skills as well as modern methods of construction such as digitalisation and
offsite manufacturing.”
